Summary
The Government wants to replace the leasehold form of property ownership with commonhold ownership. Commonhold structures allow flat owners to jointly and directly own their building and exercise control over its management and shared facilities.
Housing Minister Matthew Pennycook says his aim is to abolish the leasehold system in England and Wales during the current parliament. The proposed legislation follows the Leasehold and Freehold Reform Act 2024, which was introduced to make it simpler for leaseholders to extend their leases and acquire freeholds.
To help make sense of the proposal, Investec put questions to property lawyer Annabel Dean. She is a Partner at Farrer & Co.
Commonhold reform at a glance
The Government wants flat owners in England and Wales to be able to take control of the buildings they live in through a commonhold structure of ownership.
- Commonhold is a form of freehold ownership that gives flat owners outright ownership of their home. Each flat in a commonhold building is referred to as a unit. The owner of a unit holds the freehold to the unit.
- The freehold of the common parts (such as the structure of the building, internal hallways and any external grounds and gardens) is owned by the commonhold association (a company limited by guarantee).
- All unit holders must be a member of the commonhold association, so will each own a share in the freehold of the common parts. It is the commonhold association that is responsible for the upkeep of communal areas and the rules governing the management of the building.
- This is intended to replace the current system where flat owners have leases of a fixed term of years, but freeholders are responsible for building maintenance and management.
- Commonhold ownership is already permitted in England and Wales but is very rarely used. However, it has been widely adopted in other countries including the United States, Australia and New Zealand.
- The planned reforms are intended to make commonhold tenure in England and Wales more broadly applicable to both residential flats and mixed-use blocks and to alleviate key concerns that developers and lenders currently have with commonhold.
- Ministers are also aiming to address issues that could arise when mortgage borrowers wish to convert existing leaseholds to commonhold.
- Following the publication of the Commonhold White Paper in March 2025, the Government intends to introduce a draft Leasehold and Commonhold Reform Bill in the second half of the year.
What is the main purpose of the forthcoming Commonhold Bill?
Since legislation already exists to permit commonhold ownership, new rules will be designed to ensure commonhold structures are clear and robust. Tenants may also be incentivised to convert leasehold structures to commonhold structures.
Annabel Dean, Partner at law firm Farrer & Co, says there will be an important interplay between any new commonhold legislation and reforms that are due to come in under the Leasehold and Freehold Reform Act 2024. “Once the Leasehold and Freehold Reform Act’s provisions come into force, it will be simpler and cheaper for leaseholders who are part of a block that is managed by a freeholder to collectively purchase that freehold,” she explains.
“Commonhold is simply a type of freehold tenure, and the proposed legislation is intended to both make it easier for existing leasehold structures to be converted to commonhold and encourage or require new-build developments to adopt the commonhold model from the outset.”
However, she points out that the new legislation will have to address cases where not all tenants wish to adopt a commonhold model. “The Government is looking at how non-consenting tenants can retain their existing leasehold structure and not participate in the commonhold structure.”
What type of properties will the legislation apply to?
According to the White Paper, the commonhold model will initially be promoted for residential and mixed-use blocks. However, the Government believes the structure could eventually be extended to cover commercial units such as industrial and retail parks.
What advantages will commonhold structures have over share of freehold models?
At present, groups of leaseholders have the right to join forces to buy their freehold from their landlord. Share of freehold ownership allows flat owners to assume responsibility for the upkeep of the building they live in. However, the Government believes that the share of freehold model has some disadvantages in comparison to commonhold. For example, share of freehold arrangements are subject to leasehold legislation which is generally designed to govern a situation where there is a third-party landlord, and not one where the tenants are collectively the owners of the freehold and the landlord of the building.
In addition, share of freehold arrangements often involve putting in place a company (in which all the tenants have shares) to own the freehold. Dean says: “This is a somewhat artificial structure and leasehold law, and company law often do not interact very well. From a legal point of view, these companies are usually not well-equipped to deal with tenants’ day-to-day decision-making. There can also be a lack of clarity about what should happen in the event of a dispute.”
How will decision-making processes operate under commonhold structures?
A commonhold association, made up of all the owners in a block, will be set up as a company limited by guarantee. This association will be responsible for managing communal parts of the building as well as governance issues.
“The advantage of commonhold is that the standard set of rules which applies to commonhold associations is specifically designed for the management of communal property, so it is well adapted for standard management issues and collective decision- making,” Dean explains. Members of the commonhold association will be able to vote on annual budgets and make collective decisions on topics such as building maintenance and rules. The Government aims to improve the standard rules. For example, there are plans to have mandatory reserve funds to ensure that there is enough money to cover emergency repairs as well as ongoing maintenance.
What are the implications for landlords who own freeholds on blocks of flats?
The main impact on existing landlords is likely to come from the Leasehold and Freehold Reform Act 2024, which is set to make it easier and cheaper for leaseholders to collectively buy freeholds from their landlords.
What are the potential obstacles to making commonhold more widespread?
It is thought that the demands of commonhold ownership could increase the risk and financial burden for some homeowners.
More broadly, there is a considerable amount of detail that needs to be worked out to make commonhold the default tenure in the UK. “There are hundreds of years of case law for the leasehold model, with various accepted principles and rules determined by statute and case law” says Annabel. “One thing is certain: we can expect a lot of discussion and analysis before these new proposals become law.”
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